Environment, Asset Characteristics, and Optimal Effluent Fees
AbstractThis article investigates theissue of optimal effluent fees in a frameworkwhere waste emissions are abated by investingin capital of which the pay-off is uncertainand the cost is fully sunk. The stock of wasteemissions harms an individual firm'sproduction, but the firm will underestimatethis external effect upon investing. Consequently, the firm will invest lesscapital, and thereby, pollute more than issocially desirable. The regulator, who can useeffluent fees to correct this, should imposelower effluent fees on irreversible investmentsthan on costlessly reversible ones whenuncertainty arises. Copyright Kluwer Academic Publishers 2001
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Bibliographic InfoArticle provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.
Volume (Year): 20 (2001)
Issue (Month): 1 (September)
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Web page: http://www.springerlink.com/link.asp?id=100263
effluent fees; environmental externality; irreversible investment; real options;
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